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February 2003 Non-Manufacturing ISM Report On Business®

FOR RELEASE: March 5, 2003

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
Business Activity at 53.9 %

DO NOT CONFUSE THIS NATIONAL NON-MANUFACTURING REPORT with the various regional purchasing and supply reports released across the country or the Manufacturing ISM Report On Business®. The national non-manufacturing report's information reflects the entire United States, while the regional reports cover only their local vicinity. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of February 2003.

New Orders, Prices, Exports, Imports Increase
Employment, Inventories Decrease

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in February 2003, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Ralph G. Kauffman, Ph.D., C.P.M., chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee and coordinator of the purchasing and supply management program, University of Houston-Downtown. "In February, non-manufacturing business activity increased for the 13th consecutive month. The reported growth indicates a slightly slower rate of expansion than reported in January," Kauffman said. He added, "Also in February, New Orders grew at a slower rate than in January, and the Backlog of Orders Index indicated that backlogs were at the same level in February as in January."

Although the non-manufacturing sector grew more slowly overall in February on a seasonally adjusted basis, purchasing and supply executives report that 10 industry groups grew in February, while only three groups contracted, and three others reported no change from January. Increased business activity in February was reported by 28 percent of members, compared to January's 24 percent. Reduced activity was reported by 19 percent of members compared to 25 percent in January. In February, the remaining 53 percent of members indicated no change in business activity, compared to 51 percent in January. The Backlog of Orders Index in February increased by 2 percentage points to 50 percent. While this indicates that order backlogs held their own, a drop of 3.2 percentage points in the February New Orders Index brings that index down to 53 percent from January's 56.2 percent. This reflects continued growth in new orders but at a slower rate than in January. Members reported that the prices they pay increased for the 12th consecutive month in February. February's prices index at 60.9 percent is the highest since 61.8 percent was reported in January 2001. This month, 15 industry groups reported paying higher prices compared to January, one reported paying the same, and no industry groups reported paying lower prices in February. Members' general comments on business in February continue to be mixed. These included: "New business activity in positive growth stages"; "Clients still delaying capital spending decisions"; "Sensitivity of markets to threat of war at a very high level"; and "Rising fuel costs, coupled with harsher winter weather, are big concerns."

In addition, Inventories decreased for the seventh consecutive month but at a slower rate of decrease than in January. With regard to Inventory Sentiment, members reported increased concern that inventories are too high. New Export Orders and Imports both increased, while Employment contracted. Supplier Deliveries indicated slower performance for the 18th consecutive month.

Significant reports of commodities in short supply or up or down in price in February indicate that IV solutions are in short supply. Price increases are reported for airfares; asphalt; asphalt oils; asphalt products; beef; building materials; copper; #2 diesel fuel; drywall; fuel; gasoline; #2 heating fuel; natural gas; paper; petrochemical products; petroleum; petroleum-based products; petroleum products; pork and pork products; steel fittings; and uniforms. Price decreases are reported for chicken; computer hardware/PCs; and purchasing professionals.

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE and
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
  Non-Manufacturing Manufacturing
Index February
Index %
January
Index %
Index Change
from January
Direction &
Rate of Change
February
Index %
January
Index %
Index Change
from January
Business Activity / Production 53.9 54.5 -0.6 Increasing slower 55.4 56.3 -0.9
New Orders 53.0 56.2 -3.2 Increasing slower 52.3 59.7 -7.4
Employment 49.0 50.3 -1.3 Decreasing from increasing 42.8 47.6 -4.8
Supplier Deliveries 52.5 52.0 +0.5 Slowing faster 53.3 52.6 +0.7
Inventories 48.5 46.5 +2.0 Decreasing slower 43.8 45.4 -1.6
Prices 60.9 57.0 +3.9 Increasing faster 65.5 57.5 +8.0
Backlog of Orders 50.0 48.0 +2.0 Unchanged from decreasing 49.0 45.0 +4.0
New Export Orders 58.5 53.0 +5.5 Increasing faster 55.5 55.6 -0.1
Imports 51.5 56.5 -5.0 Increasing slower 55.4 59.0 -3.6
Inventory Sentiment 66.5 64.5 +2.0 Greater feeling of "too high" N/A    
Customers' Inventories N/A       46.0 42.5 +3.5

* Non-Manufacturing ISM Report on Business® data is seasonally adjusted for Business Activity, New Orders, Prices, and Employment. Manufacturing ISM Report on Business® data is seasonally adjusted except for Backlog of Orders, Prices, and Customers' Inventories.

Business Activity

ISM's Non-Manufacturing Business Activity Index in February decreased 0.6 percentage point on a seasonally adjusted basis to 53.9 percent from January's 54.5 percent. February's index indicates a small decline in the rate of growth but extends to 13 the consecutive months of growth that began in February 2002. In February, 10 sectors reported increased business activity, three sectors reported decreased activity, and three reported no change in activity compared to January.

The industries reporting the highest rates of growth of business activity in February are: Health Services; Other Services*; Finance & Banking; Mining; and Real Estate. The industries reporting contraction of business activity in February are: Transportation; Public Administration; and Wholesale Trade.

Business
Activity
% Higher % Same % Lower Index
February 2003 28 53 19 53.9
January 2003 24 51 25 54.5
December 2002 27 49 24 54.2
November 2002 30 53 17 55.7

New Orders

ISM's Non-Manufacturing New Orders Index decreased to 53.0 percent in February from 56.2 percent in January. Comments from members include: "Level of new business increasing"; "Slightly higher in the areas of new construction/plant/facility modernization projects"; "Growth in new accounts"; and "Uncertain state budget allocations."

The industries reporting the highest rates of growth of new orders in February are: Health Services; Other Services*; Agriculture; Mining; and Communication. The industries reporting contraction of new orders in February are: Transportation; Entertainment; Insurance; Finance & Banking; and Public Administration.

New Orders % Higher % Same % Lower Index
February 2003 25 58 17 53.0
January 2003 24 55 21 56.2
December 2002 27 49 24 54.6
November 2002 29 55 16 55.4

Employment

Employment in the non-manufacturing sector decreased at a slow rate in February after registering the first increase in 23 months in January. ISM's Non-Manufacturing Employment Index for February is 49 percent compared to 50.3 percent in January. Comments from respondents include: "Increased business"; "Reductions made to match downturn in business"; and "Budget cuts = less employees."

The industries reporting growth in employment in February are: Finance & Banking; Communication; Retail Trade; and Health Services. Industries reporting reduction in employment in February are: Construction; Insurance; Public Administration; Mining; Wholesale Trade; and Other Services.*

Employment % Higher % Same % Lower Index
February 2003 12 69 19 49.0
January 2003 12 73 15 50.3
December 2002 14 64 22 46.9
November 2002 13 66 21 46.3

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 18th consecutive month in February. The index registered 52.5 percent, an increase of 0.5 percentage point from the 52 percent reported in January. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in February include: "Some raw materials are tighter to manufacturers due to military buildup"; "No stock of material at manufacturer"; "Weather and railroad congestion"; and "Low vendor inventories."

The industries that reported the highest rates of slowing in supplier deliveries in February are: Entertainment; Utilities; Real Estate; Communication; and Finance & Banking. The only industry reporting faster supplier deliveries in February is Public Administration.

Supplier
Deliveries
% Slower % Same % Faster Index
February 2003 11 83 6 52.5
January 2003 8 88 4 52.0
December 2002 10 85 5 52.5
November 2002 9 87 4 52.5

Inventories

ISM's Non-Manufacturing Inventories Index registered 48.5 percent in February, 2 percentage points higher than the 46.5 percent reported in January. February's index means that material inventories maintained by non-manufacturing organizations decreased for the seventh consecutive month but at a slower rate of decrease than in January. Of the total respondents in February, 28 percent indicate they do not have inventories or do not measure them. Comments from members include: "Continuing general inventory reduction plan"; "Trying to diminish inventories"; "Improved inventory management techniques"; "Using stock – not replacing due to budget restraints"; and "Depleting certain inventory."

The industries reporting inventory increases in February are: Wholesale Trade and Retail Trade. Industries reporting the highest rates of inventory decrease in February are: Mining; Entertainment; Construction; Communication; and Utilities.

Inventory
Change
% Higher % Same % Lower Index
February 2003 15 67 18 48.5
January 2003 18 57 25 46.5
December 2002 18 55 27 45.5
November 2002 15 58 27 44.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased for the 12th consecutive month in February. ISM's Non-Manufacturing Prices Index for February is 60.9 percent, an increase of 3.9 percentage points from the 57 percent registered for January. In February, the percentage of members reporting higher prices rose 6 percentage points to 31 percent from 25 percent in January, the proportion indicating no change dropped 2 percentage points to 63 percent, and the number who noted lower prices decreased 4 percentage points in February to 6 percent.

The industries reporting the highest rates of increase in prices paid in February are: Transportation; Agriculture; Mining; Utilities; Public Administration; and Insurance. No industry reported price decreases in February.

Prices % Higher % Same % Lower Index
February 2003 31 63 6 60.9
January 2003 25 65 10 57.0
December 2002 14 75 11 55.3
November 2002 18 72 10 57.5

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 50 percent in February. This indicates no change in order backlogs in February compared to January. The February index is an increase of 2 percentage points from January's 48 percent. Of the total respondents in February, 42 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Business is growing overall"; "Material shortages"; and "Working off backlog."

The industries reporting the highest rate of growth in backlog of orders in February are: Real Estate; Other Services*; Communication; Mining; and Utilities. The industries reporting decline of order backlogs in February are: Entertainment; Retail Trade; Public Administration; and Construction.

Backlog
of Orders
% Higher % Same % Lower Index
February 2003 12 76 12 50.0
January 2003 12 72 16 48.0
December 2002 18 67 15 51.5
November 2002 15 71 14 50.5

New Export Orders

Orders and requests for services and other non-manufacturing activities to be provided outside of the United States by domestically-based personnel grew in February for the fourth consecutive month. The New Export Orders Index for February is 58.5 percent compared to January's 53 percent, indicating a faster rate of growth than in January. Of the total respondents in February, 81 percent indicated they either do not perform, or do not separately measure, orders for work outside the United States.

The industries reporting increases in new export orders in February are: Public Administration; Real Estate; Wholesale Trade; Business Services; and Communication. The industries reporting decreases in new export orders in February are Retail Trade and Mining.

New Export
Orders
% Higher % Same % Lower Index
February 2003 25 67 8 58.5
January 2003 16 74 10 53.0
December 2002 16 76 8 54.0
November 2002 26 65 9 58.5

Imports

In February, the ISM index indicating use of imported materials by non-manufacturing industries decreased from January's value. This indicates growth for the fifth consecutive month but at a slower rate than in January. ISM's Non-Manufacturing Imports Index for February is 51.5 percent, a decrease of 5 percentage points from the 56.5 percent reported in January. In February, 73 percent of respondents reported that they do not use or do not track use of imported materials.

The industries reporting increases in use of imports in February are: Health Services; Business Services; and Wholesale Trade. The industries reporting decreased use of imports in February are Other Services* and Communication.

Imports % Higher % Same % Lower Index
February 2003 18 67 15 51.5
January 2003 27 59 14 56.5
December 2002 7 86 7 51.8
November 2002 15 78 7 55.1

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in February registered 66.5 percent, 2 percentage points higher than the 64.5 percent reported for January. This indicates that non-manufacturing purchasing and supply executives felt a greater degree of discomfort with current levels of inventory in February than they did during January. In February, 38 percent of respondents felt their inventories were too high, 5 percent indicated their inventories were too low, and 57 percent said that their inventories were about right.

The industries that reported the highest rates of feeling that their inventories were too high in February are: Insurance; Wholesale Trade; Utilities; Agriculture; and Construction. The industries that reported that their inventories were too low in February are Retail Trade and Mining.

Inventory
Sentiment
% Too High % About Right % Too Low Index
February 2003 38 57 5 66.5
January 2003 32 65 3 64.5
December 2002 35 56 9 63.0
November 2002 26 70 4 61.0

*Other Services include:
Hotels, Rooming Houses, Camps, and Other Lodging Places; Personal Services; Automotive Repair, Services, and Parking; Miscellaneous Repair Services; Educational Services; Social Services; Museums, Art Galleries, and Botanical and Zoological Gardens; Membership Organizations; Engineering, Accounting, Research, Management, and Related Services; and Miscellaneous Services.

Commodities Reported in Short Supply

IV Solutions is the only commodity reported in short supply in February.

Commodities Reported Up in Price

Airfares; Asphalt; Asphalt Oils; Asphalt Products; Beef — 2nd month; Building Materials; Copper; #2 Diesel Fuel — 5th month; Drywall; Fuel — 2nd month; Gasoline — 5th month; #2 Heating Fuel — 4th month; Natural Gas — 3rd month; Paper — 2nd month; Petrochemical Products; Petroleum; Petroleum-Based Products; Petroleum Products — 2nd month; Pork and Pork Products; Steel Fittings; Uniforms.

Commodities Reported Down in Price

Chicken; Computer Hardware/PCs — 3rd month; Purchasing Professionals.

Data and Method of Presentation

The Non-Manufacturing ISM Report on Business® is based on data compiled from monthly replies to questions asked of more than 370 purchasing and supply executives in over 62 different industries representing nine divisions from the Standard Industrial Classification (SIC) categories. Membership of the Business Survey Committee is diversified by SIC category and is based on each industry's contribution to Gross Domestic Product (GDP).

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (Business Activity, New Orders, Backlog of Orders, New Export Orders, Inventory Change, Inventory Sentiment, Imports, Prices, Employment, and Supplier Deliveries), this report shows the percentage reporting each response, the net difference between the number of responses in the positive economic direction (higher and slower for Supplier Deliveries) and the negative economic direction (lower and faster for Supplier Deliveries). Responses represent raw data and are never changed. Data is seasonally adjusted for Business Activity, New Orders, Prices, and Employment. The remaining indexes have not indicated significant seasonality.

A weighted composite index similar to the PMI that is so popular in the Manufacturing ISM Report on Business® is not available. Several years of data will need to be developed before that type of non-manufacturing indicator can be developed. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. An index reading above 50 percent indicates that the non-manufacturing economy in that index is generally expanding; below 50 percent, that it is generally declining. Supplier Deliveries is an exception. A Supplier Deliveries index above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.

The data presented herein is obtained from a survey of manufacturing supply managers based on information they have collected within their respective organizations. ISM makes no representation, other than that stated within this release, regarding the individual company data collection procedures. Use of the data is in the public domain and should be compared to all other economic data sources when used in decision making.

The Non-Manufacturing ISM Report on Business® is published monthly by the Institute for Supply Management™, the largest supply management research and education organization in the United States. The Institute for Supply Management™, established in 1915, is the world's leading educator of supply management professionals and is a valuable resource for decision makers in major markets, companies, and government.

The full text version of the Non-Manufacturing ISM Report on Business® is posted on ISM's Web site at www.ism.ws on the third business day of every month after 10:10 a.m. (ET). The next Non-Manufacturing ISM Report on Business® featuring the March 2003 data will be released at 10:00 a.m. (ET) on April 3, 2003.



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